China Internet Finance, Cigarettes, Bitcoin: Compliance

March 26 (Bloomberg) -- Executives of China’s largest banks
called on regulators to curb the rapid expansion of Internet
financing in that nation.

The form of financing has siphoned off so much business
from traditional banking that it was labeled a “blood-sucking
vampire” by a commentator on state-run television.

One focus of critics’ ire has been Yu’E Bao, the fund
pioneered nine months ago by Alibaba Group Holding Ltd.’s
online-payment affiliate Alipay. Its ease of use, involving a
few taps on a smartphone, has drawn deposits from 81 million
customers chasing returns higher than China’s banks can offer.

Bank executives, unable to stop the decline in their
cheapest source of funding because interest rates on comparable
deposits are fixed by the government at 0.35 percent, are
calling for more regulation, saying that lack of oversight and
risks related to account security, yield volatility and
liquidity management threaten China’s financial stability.

China’s policy makers are pushing for unprecedented changes
in the banking system, including deposit insurance and
deregulating interest rates, to give markets a bigger role in
the economy. Cheap funding costs have enabled banks to fuel
industry overcapacity and excessive borrowing by state-owned
companies and local governments.

Compliance Policy

Cigarette Smuggling Prompts Crackdown by States Losing Billions

Higher cigarette taxes are prompting a smuggling trade
along routes on the East Coast, and states are trying to stem
the contraband to fight crime and regain lost revenue.

Lawmakers in Virginia and Maryland boosted the penalties on
smuggling in the past year. A Massachusetts commission released
a report March 1 recommending a crackdown on trafficking.
Legislation is pending in states including New Jersey and Rhode
Island.

As states and the federal government raised tobacco taxes,
the profit incentive for smugglers increased. States are trying
to prevent the loss of billions of dollars in revenue and to
combat an increase in organized crime.

Compliance Action

Santander Fined $20.5 Million by U.K. Watchdog on Advice Flaws

Banco Santander SA was fined 12.4 million pounds ($20.5
million) by the U.K. regulator for flaws in investment advice
given to customers as the watchdog clamps down on misconduct in
consumer lending.

The fine, the biggest for the U.K. arm of Spain’s largest
lender, follows a probe by Britain’s Financial Conduct Authority
started more than a year ago. The watchdog found that Santander
failed to prevent customers from getting misleading information,
didn’t carry out regular checks on customers, and didn’t ensure
new advisers were properly trained before giving advice.

The Spanish bank received a 30 percent discount from the
FCA because it settled at an early stage in the investigation.
Santander has closed its investment advice arm as a result of
the probe.

“Santander U.K. takes its regulatory obligations very
seriously and has cooperated fully with the FCA’s
investigation,” the company said in an e-mailed statement.

Hackers Selling Exploits for Bitcoins Thriving in Illicit Market

Hackers from the U.S., Russia and Ukraine hawk computer
exploits for as much as $300,000 on an underground market fueled
by digital currencies like Bitcoin, a report by Rand Corp. and
Juniper Networks Inc. shows.

The trade in software, data or commands that takes
advantage of computer bugs generates billions of dollars using
digital storefronts that connect sellers and buyers or where
mercenaries can be hired to do the job, according to the report
released yesterday.

Exploits, as tools for conducting computer attacks are
known, can be used for illegal acts from stealing data off a
mobile device to breaching corporate databases, according to the
report.

Hackers are increasingly using virtual currencies to hide
their identities, as well as so-called darknets, or private
forums, according to the report.

Interviews/Commentary

IRS to Make Limited Use of Offshore Bank Data, Koskinen Says

The Internal Revenue Service initially will make limited
use of information supplied by other governments about U.S.
citizens’ offshore holdings because of budget constraints,
Commissioner John Koskinen said at a conference in Washington.

Major pieces of the Foreign Account Tax Compliance Act, or
Fatca, take effect July 1. The law has led to agreements with
governments around the world to exchange information.

Koskinen said he was conscious of the potential
difficulties foreign banks are having in developing compliance
systems. The IRS doesn’t plan to postpone the July 1 deadline,
he said.